PARTNERSHIP

DEED
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N A M E – N I D H I S H G O YA L
CLASS – XII COMM’ A
ROLL NO. – 17
SCHOOL – OM PARK ASH
BANSAL MODERN SCHOOL
SESSION – 2022-2023
S U B J E C T – A C C O U N TA N C Y
TOPIC – PARTNERSHIP
DEED 2
 INDEX

S. NO. TOPIC SLIDE NO

1. Images of Partnership Deed
2. Partnership
3. Essential Characteristics of Partnership
4. Rights of Partners
5. Partnership Deed
6. Importance of Partnership Deed
7. Provisions Affecting Accounting Treatment in the Absence of Partnership
Deed
8. Some other Important Provisions of the Indian Partnership Act, 1932
9. Liabilities of Partners
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 PARTNERSHIP
• Partnership is defined by Indian Partnership Act, 1932, Section 4, as follows:
"Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all."
• A partnership, thus, is a business relationship among two or more persons to
share profits and losses of the business, carried on by all or any of them acting
for all.
• Partners, Firm and Firm Name: The persons who have entered into a
partnership with one another individually are called partners and collectively a
firm. The name under which the business is carried is called firm name.
 Nature of Partnership
Partnership, LEGALLY  is not a separate legal entity from its partners since the
firm's debts can be paid from private assets of the partners, if the firm is not able to
pay its liabilities. As per ACCOUNTING viewpoint, Partnership is a separate
business entity.
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 ESSENTIAL CHARACTERISTICS OF
PARTNERSHIP
1. TWO OR MORE PERSONS:
There must be at least two persons to form a partnership and all such persons must be
competent to contract. According to Indian Contract Act, 1872, every person except the
following are competent to contract:
(a) Persons of unsound mind, and
(b) Persons disqualified by any law.
Maximum The Companies Act, 2013 (Section 464)
empowers the Central Government to
prescribe number of partners in a firm

Number of
subject to maximum of 100 partners. The
Central Government has prescribed
maximum number of partners in a firm to
be 50 vide Rule 10 of the Companies

Partners:
(Miscellaneous) Rules, 2014. Thus, in
effect, a partnership firm cannot have
more than 50 partners.

Minor as a
A minor can be a partner in the profits of
the firm and not in the losses. A minor
partner on becoming a major should
accept or refuse the partnership in the firm

Partner:
within 6 months. If he/she does not so
decide, he/she becomes liable for all the
actions since he/she became partner.
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2. AGREEMENT:
Partnership comes into existence by an agreement, either written or oral. It is the basis of
relationship among partners, which may be for a particular venture, for a period or at will. The
written agreement among the partners is known as Partnership Deed.
3. BUSINESS:
A partnership is established for a business.
4. PROFIT SHARING:
The agreement between/among the partners should be to share profits and losses of the
business.
5. BUSINESS CAN BE CARRIED ON BY ALL OR ANY OF THE PARTNERS ACTING FOR
ALL:
Business of the partnership can be carried on by all the partners or by any of them acting for
all the partners. In other words, partners are agents as well as the principals.

As an agent, he represents other partners and thereby, binds them through his acts.
As a principal, he is bound by the act of other partners. 8
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 RIGHTS OF PARTNERS
1. Every partner has the right to participate in the management of the
business.
2. Every partner has the right to be consulted about the business matters.
3. Every partner has the right to inspect the books of account and have a
copy of it.
4. Every partner has the right to share profits and losses with others in the
agreed ratio.
5. If a partner has advanced loan, he has the right to receive interest thereon
at an agreed rate of interest. In case the rate of interest is not agreed, interest
is paid at the provided in the Indian Partnership Act, 1932, which is 6% p.a.
6. A partner has the right to take decisions in the interest of the business.
7. A partner has the right not to allow the admission of a new partner. 10
 PARTNERSHIP DEED
Partnership comes into existence by an agreement either oral or written. It is always better to
have written agreement to avoid any dispute. This written document known as Partnership Deed
details the terms and conditions of partnership. It is a legal document signed by all the partners
and normally has clauses on the following:

1. Description of the Partners Names, description and addresses of the

partners.
2. Description of the Firm: Name and address of the firm.
3. Principal Place of Business: Address of the principal place of business.
4. Nature of Business: Nature of business that the firm shall carry on.
5. Commencement of Partnership: Date of commencement of partnership.
6. Capital Contribution: The amount of capital to be contributed by each
partner, whether the Capital Accounts shall be fixed or fluctuating. 11
7. Interest on capital: Rate of interest, if allowed, on capital.
8. Interest on drawings: Rate of interest, if to be charged, on
drawings.
9. Profit-sharing ratio: Ratio in which profits or losses are to be
shared by the partners.
10. Interest on loan: Rate of interest on loan by a partner to the firm
and interest on loan to a partner by the firm.
11. Remuneration to partners: Amount of salary, commission, etc.,
if agreed, to be paid.
12. Valuation of goodwill: Method by which goodwill of the firm will
be valued at the time of reconstitution of the firm, i.e., change in
profit-sharing ratio, admission, retirement or death of a partner.
13. Valuation of Assets: The manner in which assets of the firm shall
be valued at the time of its reconstitution.
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14. Settlement of Account: The manner in which accounts of partner(s) shall
be paid in case of his (their) retirement or death or at the time of dissolution of
the firm.
15. Accounting Period: The date on which accounts shall be closed every year.
Normally, accounts are closed on 31st March every year because every entity
must submit the return of income for its income for the period or year ended on
31st March every year.
16. Rights and Duties of Partners: The rights and duties of partners are
defined.
17. Duration of Partnership: The period of partnership, i.e., whether it is for a
specified period or for a venture or at will.
18. Bank Account Operation: How shall the Bank Account be operated?
Whether it shall be operated by any of the partners or jointly.
19. Death of a Partner: Whether the firm will continue or dissolve on the death
of a partner. 13
IMPORTANCE OF PARTNERSHIP DEED
• It is an important legal document which defines relationship among the
Partners: It is important to have written Partnership Deed so that disputes do
not arise. In case, they still arise they can be resolved on the basis of
Partnership Deed. It is useful because: -
1. It governs the rights, duties and liabilities of each partner.
2. Disputes arising, if any, among the partners are settled on the basis of
Partnership Deed, it being a written agreement.
3. If the Partnership Deed does not exist or where it exists but does not have a
clause on a particular matter, the provisions of the Partnership Act, 1932 apply.
Is it essential to have a Partnership Deed?
It is not essential but is desirable to have a Partnership
Deed. In case Partnership Deed does not exist,
provisions of the Indian Partnership, Act, 1932 will
apply. 14
 PROVISIONS AFFECTING ACCOUNTING
TREATMENT IN THE ABSENCE OF
PARTNERSHIP DEED
Matters Provisions of the Indian Partnership Act,
1932
Sharing of Profits/Losses are shared equally by the
In the absence of Profits/Losses partners.
a Partnership Interest on Capital Interest on capital is not paid (allowed) to
partners.
Deed or where it
Interest on Drawings Interest on drawings is not charged from
does not have a partners.
clause in respect Interest on Interest on loan by partner is paid (allowed) @
of the following Advance/Loan by a 6% p.a.
matters, the Partner Interest on loan by partner is a charge against
provisions of the profit. It means interest is paid whether the
Indian Partnership firm earns profit or incurs loss.
Act, 1932 apply: Remuneration to Remuneration (salary, commission, etc.,) is
Partners not paid (allowed) to any partner.
Admission of Partner New partner cannot be admitted unless all the
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partners agree to it.
SOME OTHER IMPORTANT PROVISIONS OF THE INDIAN
PARTNERSHIP ACT, 1932
1. If all the partners agree, a minor may be admitted for the benefit [Sec. 30]
of partnership.
2. A person may be admitted as a partner either with the consent [Sec. 31]
of all the existing partners or in accordance with an agreement
among the partners.
3. A partner may retire from the firm either with the consent of all [Sec. 32]
the other partners or in accordance with an agreement among
the partners.
4. Registration of the firm under the Partnership Act, 1932 is [Sec. 69]
optional and not compulsory
5. Unless otherwise agreed by the partners in the Partnership [Sec. 35]
Deed, a firm is dissolved on the death of a partner.

The partners may change the Partnership Deed to include or change any of the
clauses of the Partnership Deed as and when considered appropriate by them.
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LIABILITIES OF PARTNERS
• Subject to agreement among the partners,
1. If a partner carries on a business in competition with the firm without the
consent of other partners and earns profit from it, the profit earned from such
business shall be paid to the firm. However, losses incurred, if any, are borne
by him alone.

2. If a partner earns profit for himself from any transaction of the firm or from the
use of firm's property or business connection, the profit so earned shall be paid
to the firm.

For example, a partner gets commission from the buyer of goods on goods sold
by the firm, the commission so earned shall be paid to the firm.
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THANK
YOU
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